Nuveen CIO Saira Malik on Market Risks, AI, and Infrastructure Investments

Market Outlook and Key Risks

• ⚠️ Late August liquidity and September's historically poor performance for the S&P 500 are creating a challenging seasonal stretch for investors.
• 📊 Mixed single-stock earnings, weak employment data (73,000 payrolls), and uncertainty surrounding the Fed Chair drama are contributing to market nervousness.
• 📉 While overall earnings are expected to grow over 10% year-over-year, the tech sector's earnings have been more mixed, despite the AI trend.

Federal Reserve and Interest Rate Policy

• ✂️ A 25 basis point rate cut is the base case for September, contingent on August payroll data; a weaker print could bring a 50 basis point cut back into consideration.
• 📈 The 10-year Treasury yield is expected to drift lower, likely settling in the 4% to 4.5% range for the remainder of the year, especially if economic slowdown signs persist.
• ⚠️ The Fed faces a conundrum balancing employment data with potential inflation impacts from tariffs, though core inflation is trending towards their target.

Investment Strategy and Market Drivers

• 🚀 The NASDAQ is favored due to the ongoing AI trend, moderating 10-year yields, and its resilience as strong structural growers.
• 💰 The AI boom is characterized by hundreds of billions in investment aimed at increasing productivity and revenue growth.
• 💡 Investors are advised to stay with tried-and-true AI hyperscalers amidst potential market choppiness.

Preferred Sectors for Investment

• 🏗️ Infrastructure is a favored sector due to multi-year tailwinds from increased public and private investment in areas like AI data centers and grid upgrades.
• ⚡ Utilities are highlighted as a strong play within infrastructure, essential for powering AI growth and upgrading grids for renewable energy.
• 🤖 Artificial intelligence trades are also recommended as a structural growth theme with continued company investment.